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Mark to market suspension rumor Causes Major Rally of Lows.

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February 05, 2009 – Comments (7)

Talk of accounting rule suspension sparks recovery bouncehttp://finance.yahoo.com/news/Talk-of-accounting-rule-smallcapinvestor-14266051.htmlKevin PendleyThursday February 5, 2009, 12:38 pm EST Related: Bank of America Corporation, Badger Meter Inc., Cisco Systems, Inc.

 

Small-cap stocks reversed morning losses and climbed into positive territory, sparked by talk that the “mark-to-market” accounting rules might be suspended to provide additional relief to banks and financial institutions to weather the current crisis. In addition, solid action for tech stocks and gains for retailers amid same-store sales reports provided further bullish fodder. At 12:10 p.m. ET, the Russell 2000 (NYSEArca:IWM - News) was up 9.15, or 2.04%, at 457.62.

Related QuotesSymbolPriceChangeBAC4.45-0.25BMI29.05+4.96CSCO16.19+0.35DRCO8.15+1.65IT11.55-3.41{"s" : "bac,bmi,csco,drco,it","k" : "c10,l10,p20,t10","o" : "","j" : ""}

Bank stocks were an early drag on the market, with Bank of America Corp. (NYSE:BAC - News) sinking to 25-year lows, but bank and other financial shares rallied off the morning lows as the accounting rule talk made the rounds. There is hope that next week’s announcement from the Obama Administration about the stimulus plan may include changes or suspension of the “mark-to-market” rules. The KBW Banking Index rallied about 6% off the early low and briefly traded in positive territory.

Outside of the recovery bounce in financials, the stock market also found support from tech shares, which were supposed to be an eyesore today following downgraded revenue projections from Internet enabler Cisco Systems Inc. (NasdaqGS:CSCO - News). After trading lower in pre-market activity, Cisco moved into positive territory today, providing a spark for tech stocks in general. Also, semiconductor shares were on a roll into mid-session, also lifting tech shares.

Retail stocks also provided a surprising source of strength today, despite a bevy of mostly disappointing monthly sales reports. The standard-bearer for the upside was probably Wal-Mart Stores Inc. (NYSE:WMT - News) as the world’s largest retailer and discount provided topped the monthly same-store sales forecast, providing hope to investors that consumer spending might not be as awful as feared. Even though individual store results were spotty, the S&P Retail Index was up about 2.5% at midday, clearly outpacing the general market.

Individual small-caps on the move today included staffing firm Kelly Services Inc. (NasdaqGS:KELYB - News), which jumped 50% without any apparent fresh news after hitting a new low Wednesday. It should be noted that volume in Kelly was only 400 shares. Another relatively obscure small cap on the rise today was Mainland Services Inc. (OTC BB:MNLU.OB - News), an oil exploration firm which jumped 37% to the highest point since November. Dynamics Research Corp. (NasdaqGM:DRCO - News) rallied 21% as the technology management firm updated guidance. Badger Meter Inc. (NYSE:BMI - News) rose 20% as the liquid flow specialist received an earnings-related boost. On the downside of things, Gartner Inc. (NYSE:IT - News) fell 22% as the IT firm beat the earnings estimate, but presented a gloomy 2009 outlook.

The recovery rally in the Russell pushed the market back above mild intraday resistance at 452.50, leaving the next test up at 461, then at 466. If the market stalls this afternoon, then support will be down at 445.50.

7 Comments – Post Your Own

#1) On February 05, 2009 at 1:16 PM, IBDvalueinvestin (99.64) wrote:

In my opinion this suspension could cause a major market rally. Just on the rumor of it being suspended has caused stocks to rally over 200 points from today's lows, imagine what they would rally to if it becomes official.

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#2) On February 05, 2009 at 1:32 PM, QualityPicks (54.81) wrote:

I'm really hoping this is true, so that I can mark my call options that I'm down 50% on to a more fair value and take a 50% profit instead. LOL :)

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#3) On February 05, 2009 at 1:47 PM, IBDvalueinvestin (99.64) wrote:

yeah its real funny to bears, do you actually think of the common man when you make retarded statements like that? Sad

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#4) On February 05, 2009 at 2:01 PM, cbwang888 (25.91) wrote:

If you get a margin call, then your broker not the mark to market...

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#5) On February 05, 2009 at 2:04 PM, IBDvalueinvestin (99.64) wrote:

From Breifing.com:

everyone expects some details to be announced next week on the Obama administration's "bad bank" plan. This is not a new catalyst -- market participants have been discussing this all week -- but a tier-1 firm came out this morning saying they expect some significant short-term rallies in the banks to result from this. Perhaps more importantly, there are reports that Senate Banking Committee Chairman Chris Dodd told reporters late Wednesday that it might be possible to modify mark-to-market rules for banks facing steep write-downs of troubled assets without abandoning the underlying accounting standard. He also was quoted as saying that he doesn't see the nationalization of BAC. If Congress ever does revise these rules, it would be a huge boost to banks getting decimated by repeated write-downs, and the fears that some major banks could be nationalized have been a real concern since the beginning of the new year.

So, instead of lightening up ahead of a the Nonfarm Payrolls report tomorrow morning, at the moment at least it appears that market participants have switched gears and are at the very least covering some of their shorts ahead of what could be some good news for the banks next week. This in turn is encouraging some longs to come off the sidelines and further nibble on some of their favorite names.

Today's close will tell us a lot about the conviction behind these expected catalysts.

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#6) On February 05, 2009 at 2:50 PM, angusthermopylae (40.04) wrote:

...er, so they can lie about the value? 

*sigh*  Sounds like someone is trying to do whatever it takes to make the morkets look good--no matter what the long-term cost...

But what do I know?  I'm just the guy who has to live with the rules and now try to figure out what mental, financial, and temporal gymnastics companies are using to establish "value".

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#7) On February 05, 2009 at 4:58 PM, jgseattle (32.68) wrote:

mark to market is ok.  If you can make an arguement that the current price is not reasonable or if you are going to hold the security to maturity you do not need to mark to market.

I think changing this would be a mistake and hide losses that need to be taken out of the system.  Who now trusts the balance sheet of any large bank?  If you remove this the bankers will have a lot of discretion to price assets and then look out for the crooks!

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